CLA Outlook — Key Insights for Sound Financial Strategies

The Consumer Price Index rose only 0.1% in May, below the consensus forecast of 0.2%. Also, the U.S. and China agreed to a trade framework where China resumes exports of rare earth minerals and the U.S. rolls back restrictions selling advanced technology. Between the two, the Federal Reserve may be more inclined to cut interest rates sooner than what the market has currently priced in.

Key voting members of the Federal Open Market Committee expressed cautious optimism about the U.S. economy, citing a strong labor market and progress toward their 2% inflation target. However, they are also concerned about tariffs causing price increases over short-term and embedding higher inflation expectations over the long-term. As such, monetary policy is likely to remain unchanged until the economic impacts of tariffs become clearer.

Municipal bond funds have experienced an average decline of 0.6% year-to-date in 2025, with longer-maturity and high-yield funds down about 1.5%. Key factors contributing high starting valuations, more new bond issuances, market volatility leading to fund outflows, and uncertainty surrounding monetary policy and inflation. Municipal bonds still remain attractive due to their high tax-equivalent yields and the stable finances of many state governments.